WEIGHTED AVERAGE

COST OF CAPITAL

Presented by; Doma Sherpa

Reg No. 202201103002
BBA (3rd Semester)

School of Management and Commerce

 • The weighted average cost of
INTRODUCTION capital is the rate that a
company is expected to pay
on average to all its security
holders to finance its assets.
• The WACC is commonly
referred to as the firm's cost
of capital.
 Steps for calculating the firm's WACC

1 2 3 4
Calculate the cost of Assign weight to Multiply the cost of Add the
specific sources of specific cost. each source weighted component
funds with weights. costs to get
the WACC.
 • Used for making investment decisions by the
IMPORTANCE company.
AND USAGE • Evaluation of projects with different risks.
• WACC can be used as discount rate in net
present value calculation.
• WACC is used for valuation of the company.
• Evaluation of the projects with the same risk.
 • WACC represents the minimum rate of
Is a high WACC return for a company to produce value
good or bad? for its investors. Higher WACC ratios
generally indicate that a business is a
riskier investment, while a lower WACC
tends to correlate with more stable
business investments.